Soviets` Action May Imperil Aid From West

August 20, 1991|By Terry Atlas, Chicago Tribune.

WASHINGTON — By ousting Mikhail Gorbachev, the Kremlin`s new hard-line Communist rulers may have cost their country the Western aid, trade and economic cooperation that it desperately needs to reverse the painful economic decline and ease the hardships of Soviet life.

Congressional leaders Monday set aside plans to grant Moscow the ``most favored nation`` trading status that Gorbachev had long sought to increase his country`s modest trade with the U.S.

``I do not believe the United States should now reward those who have acted illegally,`` said Senate Majority Leader George Mitchell (D-Maine), a view echoed by the Senate Republican leader, Bob Dole of Kansas.

Directors of the World Bank put off plans to approve Tuesday its first-aid measures for Moscow, a $30 million program proposed at the London economic summit to help guide the country`s transition from communism to capitalism.

Western leaders, seeking measures to strengthen those opposed to the coup, exercised what little direct economic leverage they have over the Soviet Union.

President Bush and other Western leaders said they will suspend most government assistance to the Soviets.

The actions taken by bankers and businessmen may have even more serious consequences than those taken by governments, however, as the Soviets head into a fall and winter of political turmoil, acute food shortages and further economic decline.

Unless the coup is quickly reversed, experts fear, the Soviet citizens may face hardships unmatched since World War II, fueling popular resentment and driving the country toward civil war.

In a report three months ago, the CIA warned that a turn toward repression in the Soviet Union, which would provoke popular resistance, could cause the economy to plummet more than 15 percent this year and make inflation ``spiral out of control.``

The new leaders promised to continue Gorbachev`s economic reforms, but then courted popular support by ordering price reductions and other measures that run counter to an economic program that would be considered credible in the West.

Prospects are now uncertain for major new investments in areas like transportation and oil production, such as Amoco Corp.`s negotiations to develop the Azeri field in the Caspian Sea.

``We are waiting and watching for news,`` said Amoco spokesman Mike Thompson. ``It is our intention to pursue our interests, but it is far too early to estimate how today`s events may have changed the business conditions there.``

Even before this new crisis, Western economists had been uncertain about whether Moscow would find the money to repay $12 billion in foreign loans coming due this year plus an additional $4 billion in overdue bills from Western suppliers.

Now economists anticipate that the Kremlin may be forced to default on some of those debts as bankers and businessmen shy away from loans and investments, severing the Soviet Union from the critical trade and financing needed to avert shortages that will speed the economy`s downward spiral.

``In terms of the ability of the Soviet Union to pay its debts, this obviously is a catastrophic event,`` said economist David Johnson of PlanEcon Research Associates, a firm that monitors the Soviet and Eastern European economies.

Reflecting the nation`s economic plight, official figures show that the Soviet economy declined by 10 percent in the first half of this year compared with the year-earlier period; foreign trade contracted by more than a third;

and retail price inflation was heading toward the triple-digit level.

``One can easily play out the scenario that, unless things turn around quickly, we could see a situation of increasing chaos in terms of economic activity, strikes, lower production,`` Johnson said.

Already some Europeans worry that hundreds of thousands-perhaps as many as 2 million-Soviets will seek to escape the political and economic hardships by flooding into Western Europe if the new leadership proceeds with measures to ease emigration rules beginning Jan. 1.

The coup also could unravel the measures that Gorbachev has sought to integrate the long-isolated Soviet ruble economy into the world economy, through increased trade and membership in international financial institutions such as the World Bank and International Monetary Fund. But proposals to grant the Soviets associate status in those two institutions probably will be withheld until Western governments determine the USSR`s new direction.

In addition, U.S. grain prices fell Monday on expectations that Washington may suspend $1.5 billion in loan guarantees to help the Soviets buy American grain. And the Soviets are likely to lose other U.S. government assistance, including further financial credits and official economic and technical advice.

``The people of the Soviet Union must understand,`` said Sen. Alan Cranston (D-Calif.), ``that they will have no help from the West in coping with their economic woes and lifting their standard of living if there is a backward turn to tyranny and repression in their country.``